Iberian briefing: strong market activity despite headwinds

Strong activity is continuing in the Spanish and Portuguese markets despite economic headwinds, experts agreed at the Why Iberia? Iberian Investment briefing, organised by Real Asset Media and Iberian Property, which took place this week at Nuveen’s headquarters in the City of London.

Paloma Relinque, Head of Capital Markets, CBRE Spain.

“It has been a very strong year so far,” said Paloma Relinque, head of capital markets, CBRE Spain. “We’ve seen record prices for Spanish offices, logistics and resi and many bidders competing in each sale.”

Iberia has contributed 3.4% to total investment volumes in real estate in H1 2022.

“The situation has completely changed in the last ten years and the market is much more elastic and resilient now,” she said. “Foreign investors are a crucial presence, accounting for 78% of all deals in Portugal and 60% in Spain.”

Some sectors have recovered better than others, such as residential, logistics and hospitality that are seeing record levels of demand, while offices and retail have not bounced back to the same extent.

Yet even in these sectors there are nuggets to be found.

“In retail, resilient shopping centres or long-term leased assets with solvent tenants and sustainable rents offer higher returns,” Relinque said. “If these retail assets have survived e-commerce and Covid-19, then they are bullet-proof.”

Investors can also take advantage of the polarisation in the office sector to find opportunities in repositioning obsolete buildings or creating new sustainable developments in well-established locations in both Portugal and Spain.

“It is a real megatrend,” she said. “There is a lot of obsolete stock and there are huge opportunities to develop and repurpose.”

The Portuguese office sector is seeing high demand, a low vacancy rate and constrained new supply, so there will need to be more repositioning of assets.

Carlos Portocarrero, Partner, Head of Real Estate Spain, Clifford Chance

“We will see a lot of redevelopment to make assets ESG-compliant.” said Carlos Portocarrero, partner, head of real estate Spain, Clifford Chance. “Real estate is a local business and needs a long-term outlook: whatever happens now, the economy will recover.”

Prime office rents are growing significantly: Lisbon is seeing 3.7% increases and Barcelona 3.4%, while yields are coming down and are now below Spain’s or Italy’s. Yields at 3.25% in Madrid, 3.4% in Barcelona, 4% in Lisbon and 5.5% in Porto, which is becoming increasingly attractive to foreign companies because of its low labour costs, good transport links and quality of life on offer.

“Quite a few unicorns have opened offices in Porto, including UK-based Checkout.com which is worth €36 billion and Revolut which is worth €30 billion,” said Pedro Coelho, vice-chairman of the board, Square Asset Management. “Take-up is not yet back to pre-pandemic levels, but the outlook is positive and that’s why we are seeing spec development for the first time in Portugal.”